Table of ContentsVision / Mission / Core Values 3Financial Highlights 4History and Timeline 5Financial Condition 8Operational Highlights 9Corporate Social Responsibility 10Risk Management Framework 11

Corporate Governance Board of Directors 14 Board of Directors and Stock Information 15 Board Committees 15 Performance Assessment Program 15 Senior Management 16 Management Committees 17 Orientation and Education Program 18 Succession Policy 18 Retirement Policy 19 Remuneration Policy 19 Related Party Transaction Policy 20 Self-assessment Factor 20 Consumer Protection Practices 21

Corporate Information Organizational Structure 22 Major Stockholders 23 Product and Services 24 Product Performance 25 Branch Directory 27

Audited Financial Statement 28

Capital Structure and Capital Adequacy 36

Our VisionWith a God-centered united workforce, we will be the preferred financial institution of MSMEs in Region 4, delivering relevant financial services with excellence.

Our MissionBangko Kabayan is committed to become the region’s partner in economic development by providing quality financial products and services to MSMEs and individuals in the communities we serve. Through continuous growth, we will provide optimum returns to our shareholders as well as opportunities for our employees to develop themselves as fulfilled and holistic individuals, aware of the important role they play in the lives of others.

Our Core Values B - Belief in Divine Providence Inspiration of Bangko Kabayan as an ECONOMY of COMMUNION (EOC) Enterprise which is based on the Culture of giving.

I - Integrity Respect and adherence to ethical values.

S - Service Excellence Reciprocity.

U - Unity Relationship building.

C - Committment to Community Development Resource sharing.

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Financial Highlights 2018 2017

Minimum Required DataProfitability Total Net Interest Income 268,316,535.00 241,083,710.00 Total Non-Interest Income 73,454,999.00 61,137,134.00 Total Non-Interest Expenses 252,709,589.00 238,114,222.86 Pre-provision profit 63,845,511.00 44,459,326.65 Allowance for credit losses 5,067,169.00 200,000.00 Net Income 58,778,342.00 44,259,326.65 Selected Balance Sheet Data Liquid Assets 1,522,629,101.00 1,395,272,066.72 Gross Loans 1,885,959,034.00 1,677,028,726.17 Total Assets 3,098,890,120.00 2,860,583,191.00 Deposits 2,457,732,717.00 2,305,400,981.00 Total Equity 514,407,385.00 494,976,141.00 Selected Ratios Return on equity 12.00% 9.50%Return on assets 2.00% 1.60%Capital Adequacy Ratio 17.70% 17.90% Others Cash dividends declared 79,947,400.00 17,933,346.00

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History and Timeline

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Financial ConditionAs of December 31, 2018, Bangko Kabayan crossed over another billion mark, registering P3.1B in total assets, an increase of P237M or 8.31% - more than double of the previous year’s 4.14% growth rate.

Deposit liabilities also continued to exhibit growth in levels and with the boost from the HATAW NA program, ended at P152.33M, a modest 6.61% growth from the previous year’s level. Likewise the bank’s deposit mix continuously improved in favor of low cost deposits, giving BK its advantage in cost of funds and allowing it to offer competetive loan rates to its customers.

The bank’s total loan portfolio reached its highest level yet at P1.90B as of December 31, 2018. This represented a 12.44% increase from 2017. Loans to MSME had a 24% combined share on the total increase, proof of the bank’s continuing commitment and focus on MSME enterprise lending.

Despite the increase in loans, the quality of the portfolio further improved from 2017’s 2.63% past due to 2.16% as of year-end 2018. Meantime, gain from sale of ROPA maintained its average share of 7% of total gross income in the last 5 years.

The growth in loans, the lowering of the cost of funds, and the continuing increase in deposits and the ROPA sales maintaining good margins - all contributed to BK’s achieving a net income of over P58 Million which resulted in the growth of equity by P19M compared to the previous year.

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1.96

58.8

3.10

2.46

Operational HighlightsBK Lobo MF-OBO conversion toBranch LiteIn 2017, BK opened its 24th branch in the town of Lobo, Batangas.

In response to the mandate of the Bangko Sentral ng Pilipinas to offer a wider range of quality financial services to the grassroots for greater financial inclusion, we upgraded its status to Branch-lite. This allowed us to offer more products and services while retaining lower costs by continuing our great partnership with Palawan Express Padala for cash transactions.

Partnership with True MoneyAs we continue to explore better means of delivering low-cost financial services, we were also accredited as a Master Agent of True Money, a leading international financial technology brand that creates opportunities for Filipinos to have better lives. Through this new platform, we are able to offer bills payment, remittances and prepaid loads to our customers. To date, this has been rolled out in 10 of our branches with a combined total of 750 transactions amounting to over 2 million pesos.

New ProductsIn order to provide funding for additional working capital or asset acquisition of micro-enterprises and newly acquired small enterprises, we introduced KABAYAN MSE with a loanable amount of P50,000 to P500,000. We received over 60 availments in the first 5 months resulting to an additional P22 Million in our loan portfolio.

To generate more funds to support our growing loan activities, we also offered special interest rates for our depositors through the introduction

of HATAW NA. For a minimum placement of P50,000 with a term of at least 90 days, we

offered an interest rate of 2% to 3%. We received an overwhelming response resulting to almost 300 new accounts with a combined amount of over P110 Million.

Continuous ImprovementBangko Kabayan presently

employs 365 individu-als. With our continued

growth and the strong call for data pri-vacy, we thought it best to invest in a Human Resource Information System that would allow us to ensure integrity

and confidentiality of data while reducing

time in payroll process-ing and report generation.

The HRIS provides us with a centralized repository of employee

data and promotes paperless transactions between and among our staff.

In the area of staff professionalism, we had a total of 22 graduates from last year’s Leadership

and Management Training Program, 5 of whom have been appointed to management positions. This brings the total number of our management trainees to 115 or 33% of our current employee count.

We also have 4 employees who graduated from the Expanded Tertiary Education Equivalency and Accreditation program. They were hired as high school graduates but decided to pursue further studies while working and are now proud holders of a college degree.

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Corporate SocialResponsibilityCommitment to Community Development is one of Bangko Kabayan’s core values. Taking this true to heart, our employees rolled out 18 Bayani ng Komunidad projects through Bangko Kabayan Foundation Inc (BKFI). Some notable projects include the building of a proper walkway for students who live near the lake, the installation of solar lights in a dark barangay alley to help prevent crimes and the construction of toilet and washing facilities for public school students – all using eco-friendly bricks gathered from the different branches.

BKFI also conducted two Entrep Eskwela courses last year benefitting 26 small business owners and 13 farmers through the delivery of a course in good entrepreneurship in Candelaria’s farm business school.

Our foundation president Mrs. Tess Ganzon and executive director Ms. Gaye Gonzalvo also served as trainers in Ateneo’s Leadership and

Social Entrepreneurship course for OFWs in Hongkong and Macau, China.

And to give back at the end of another successful year, all our 24 branches conducted Christmas outreach activities in various locations last year. The variety

of activities allowed us to reach out to different sectors of society such as indigent residents, retired Kapitan members, traffic aides, barangay tanods and single mothers.

The combined activities of the foundation last year directly benefited

a total of 25,307 individuals in the communities we serve.

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Risk ManagementFrameworkBangko Kabayan (BK) is exposed to different kinds of risks that may increase probabilities of financial losses. To mitigate these risks BK established its Risk Management (RM) system as part of good governance and its culture.

RM basic principles is an element of good governance and promotes transparency, accountability and control. Effectiveness of the RM system lies with the responsibility of the Board of Directors (BOD) through its Risk Oversight Committee (ROC) who oversee the bank’s infrastructure, define, analyze, measure and report the effective control of the risks within the bank. BOD oversight includes monitoring of senior management’s activities in managing credit, liquidity, operational, compliance, interest, market, strategic and reputational risks inherent in BK.

BK uses the Enterprise Risk Management (ERM) integrated approach to view risks, considering the risks at all levels of the organization and the inter-dependencies of its various units. BK’s ERM aims to identify the risks associated with the core activities and business strategies of the bank and craft risk strategies to address these risks, at the same time inculcating RM as part of BK’s culture while integrating RM as part of BK’s good corporate governance and strategic management. It also aims to enhance operational efficiency, help sustain growth and optimize BK’s earning potential.

BK’s ERM encompasses strategic implementation of three line of defenses to define boundaries and clear responsibilities between each group. The first line of defense is the business line units who own and manage the risks. The second line of defense is the independent risk management and compliance function of the bank that oversees the risks. And the third line of defense is the internal audit which provides independent assurance.

To provide a system of checks and balances, BK separates the risk-taking decision from the risk assessment and controls over it. The front office functions in charge of business execution and risk taking activities is segregated from back office functions where the later performs support functions to increase efficiency, and implements control functions for discipline and risk mitigation. The core

banking system of BK also set appropriate controls that serves as a back office in both functions by limiting the access of the users using the least privilege principle and separation of duties. Independent from front office and back office, BK established a middle office through the risk management officer who has a direct access to the BOD and has sufficient leverage to push through complex or uncomfortable risk issues to the highest levels of decision-making.

To be able to achieve BK’s ERM objectives, BK defined its risk appetite as the maximum level of risk the bank is prepared to accept in order to achieve its corporate objectives. This ensures that identified risks shall be managed to acceptable levels set by the bank. Risk appetites are reviewed and approved by the BOD through its ROC and is communicated down to operational level by formulating related risk limits that form part of the BK’s policies. BK shall pursue its 5-year business plan with moderate risk appetite to support its vision of becoming the preferred financial institution of MSMEs in Region 4. The bank shall continue to take calculated risks to effectively serve its stakeholders, by taking into consideration its overall sustainability and maintaining an acceptable level of the following: capital adequacy ratio, annual return on equity and CAMELS rating. BK aims to operate within a moderate overall risk range, reducing risks to acceptable level emanating from competition, client relationship management, information technology confidentiality, product pricing, BSP regulations, technology implementation, information technology availability /continuity, employee communication, and tone at the top.

Communication and reinforcement of BK’s risk appetite throughout the bank help align all employees’ risk taking decisions. For managing concentration of risk, prudent risk limits are set for strategic, credit, liquidity, reputational, compliance and operations risks in accordance with BK’s size, complexity and risk profile. These risk limits are reviewed and approved by the BOD through its ROC. Through the risk management process, breaches of the risk appetite and risk limits can be identified. As the bank’s risk management continuously monitor the limits, any breaches are reported to BOD and ROC for analysis and decision on next steps.

Risk ManagementFramework

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Risk Management Framework

BK sees RM as a function and process that utilizes its infrastructure such as vision, mission, strategies, organizational structure, corporate governance, policies and procedures, technology, communication and reporting system to achieve the RM objectives of enhanced operational efficiency, sustained growth, optimized earning potential of capital, optimized beneficiary reach and risk culture inculcation. There are 8 risk categories identified to be monitored by financial institutions namely credit, liquidity, strategic, reputation, compliance, operations, market and interest rate. These risks are inherent given the infrastructure and systems instituted, which, if properly managed through an effective RM system should lead to the intended results.

Anti-Money Laundering RiskManagementBangko Kabayan is committed to protect the integrity and confidentiality of the bank accounts of its depositors and ensure that the bank will not be used as a money laundering site and conduit for the proceeds of unlawful activity. Bangko Kabayan supports the concerted effort to combat money laundering and adheres to the following principles. 1. Conduct business in conformity with high ethical standards in order to protect the bank’s safety and soundness as well as contribute to the integrity of the national banking and financial system;

2. Know our customers sufficiently to ensure that the financially disadvantaged are not denied access

to financial services while at the same time prevent suspicious individuals or entities from transacting with the bank;

3. Adopt and effectively implement a sound AML and terrorist financing risk management system that identifies, assesses, monitors and controls risks associated with money laundering and terrorist financing;

4. Comply fully with the AML rules and existing laws aimed at combating money laundering and terrorist financing by making sure that officers and employees are aware of their respective responsibilities and carry them out with superior and principled culture of compliance

5. Fully cooperate with the Anti-Money Laundering Council (AMLC) for the effective implementation and enforcement of the AMLA, as amended and its Revised Implementing Rules and Regulation.

Risk Management Unit Structure

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BK adhere with the above RM structure for efficient facilitation of the risk management process. The Chief Risk Officer (CRO) heads the risk management function and has direct access to the Board of Directors and Risk Oversight Committee. CRO directly reports to the Board of Directors, but administratively reports to the President. The Chief Risk Officer (CRO) is responsible for overseeing the risk management function and should support the BOD in the development of the risk appetite and risk appetite statement of the bank, and for translating the risk appetite into a risk limit structure. The CRO also proposes enhancements to risk management policies, processes and systems to ensure that the bank’s risk management capabilities are sufficiently robust and effective to fully support strategic objectives and risk-taking activities.

The Risk Management Function is responsible for overseeing the risk-taking activities across the bank, as well as in evaluating whether these remain consistent with the bank’s risk appetite and strategic direction. It ensures that the risk governance framework remain appropriate relative to the complexity of risk taking activities of the bank. The risk management function is responsible for identifying, measuring, monitoring and reporting risk on an enterprise-wide basis as part of the second line of defense. It directly reports to the Risk Oversight Committee (ROC) or BOD.

The Board of Directors of Bangko Kabayan is responsible for approving the bank’s risk governance framework and oversee management’s implementation. The BOD defines the bank’s risk appetite by taking into account the business environment, regulatory landscape and the bank’s long term interests and ability to manage risk. The BOD also approves and oversees adherence to the risk appetite statement, risk policy and risk limits and defines organizational responsibilities following the three lines of defense framework. The BOD ensures that the risk management, compliance and internal audit functions have proper stature in the organization, have adequate staff and resources, and carry out their responsibilities independently, objectively and effectively.

Bangko Kabayan designated a Risk Oversight Committee (ROC) who will primarily advise the BOD for BK’s overall current and future risk appetite, oversee senior management’s adherence to the risk appetite and report on the state of risk culture of the bank. The committees main responsibility is to oversee the risk management framework, adherence to risk appetite and risk management function and ensure that there is periodic review of the effectiveness of the risk management systems and recovery plans. It also ensures that corrective actions are promptly

implemented to address risk management concerns and that the current and emerging risk exposure are consistent with the bank’s strategic direction and overall risk appetite. The ROC also performs assessment on the overall status of adherence to the risk appetite based on the quality of compliance with the limit structure, policies, and procedures relating to risk management and control, and performance of management, among others. It is also responsible for the appointment/selection, remuneration, and dismissal of the Chief Risk Officer (CRO).

Risk governance requires effective information sharing and communication system enabling the timely, accurate, concise, and understandable transfer of information. This includes, educating, collecting feedback, reporting and engaging in fruitful discussion about risk. The risk management of BK is responsible for communicating risk information throughout the institution through the preparation and presentation of risk reports. This report is also presented during the regular monthly and quarterly meeting of the Risk Oversight Committee and the BOD. The risk report covers satisfactory content like areas of concern, emerging threats and opportunities and material risk areas within the organization that is being monitored. To ensure accuracy of the risk reports, the data being used is reconciled and validated from system generated reports and financial statements.

BK employs the use of risk measurement tools like Key Risk Indicator (KRI), Stress Testing and Incident Monitoring for determining the quantitative and/or qualitative impact or consequences of risk. Key Risk Indicators (KRI) is used to predict the occurrence of risks. Each of the identified top priority risks has a set of KRIs that measures the possibility of the identified priority risk happening. Stress testing is used to evaluate the financial position under unlikely, yet possible events that could cause significant impact to capital. It covers various scenarios arising from identified risk events with a high probability of occurrence. BK performs stress testing for risk events that may affect large exposures and sources of funds. Results of these tests are included in the risk reports of the Chief Risk Officer (CRO) to the Risk Oversight Committee of the Board. Scenarios and assumptions are set by the CRO based on current conditions and factual information. Monitoring of Incident Report involve actions that are not in compliance with existing policies and procedures of the bank, irregularities encountered on the systems or any action that is against the interests of the bank are monitored, summarized and reported quarterly to the Risk Oversight Committee as operational risk management tool for monitoring risk of loss resulting from inadequate or failed internal processes, people and system or from external events.

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Corporate GovernanceBoard of Directors

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Performance Assessment ProgramPeriodically, the Board of Directors conduct a self-assessment of its performance against established criteria for purposes of assessing its effectiveness.

Performance assessment serves as the board’s tool to improve its structure, composition, practices and procedures.

The Chief Compliance Officer prepares the overall report and submits the same to the board for discussion and action to improve effectiveness.

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Board of Directors and Stock Information

Board Committees

Senior Management

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Management Committees

Executive Committee (Execom)The executive committee provides a mechanism to engage within the limits set by board, in decision making, relating to the transaction routine, administrative matters, oversight and communication of important organizational matters.

Members: 1. President 2. Chief Operating Officer 3. Chief Financial Officer 4. Corporate Planning Head 5. Operations Control Officer 6. Credit Group Head 7. Microfinance Head 8. Treasury Head 9. Strategic Support Group Head 10. Chief Compliance Officer 11. Internal Audit Head 12. Risk Officer - Designated Secretary Personnel Committee (PerCom)The Personnel Committees provides direction and decision-making for employee policies, compensation and benefits, legal compliance and staff evaluation and trainings. The Personnel Committee ensures that all employees have the training and tools to perform their jobs, are held accountable for achieving goals, and are compensated appropriately for their efforts.

Members: 1. Strategic Support Group Head 2. HR Manager 3. Operations Control Officer 4. Training and Organizational Development Specialist - Designated Secretary Asset and Liability CommitteeThe Asset/Liability Committee (ALCO) has been established to assess the adequacy and monitor the implementation, of the Bank and Company’s Asset/Liability Management policy and related procedures. The ALM Policy will include specific policies and procedures relating to (i) interest rate risk, (ii) market/investment risk, (iii) liquidity risk, (iv) credit risk, and (v) capital risk.

Members: 1. President 2. Executive Vice President - CFO 3. Treasury Head - Designated Secretary

Executive Credit Committee (ExeCreCom)

In line with the Bank’s thrust of maintaining a high quality, sound and profitable loan portfolio, the Executive Credit Committee was formed to evaluate and approve loan accounts within its credit approval authority. They are responsible to review credit policies and procedures, recommend changes, if necessary. To ensure continues effectiveness of loan product, review of performance are done to act/resolve credit risk limit breached as discussed with the risk board committee.

The Committee carries out the following responsibilities: (1) Reviewing and approving credit decision that may pose material risks to the Bank’s business strategy or reputation, (2) Reviewing the financial results of the Bank and determining action plans and (3) Reviewing and approving all loans and credit transactions with the scope of its authority.

Members: 1. President - BOD Member 3. Chief Financial Officer 4. Chief Operating Officer 5. Credit Group Head 6. Credit Management Head

Management Committee (ManCom)The Management Committee (ManCom) is responsible for crafting strategic decisions to ensure that the organization stays true to its Vision and Mission as it carries out its daily operations. The Committee makes important decisions to direct the future of the organization.

Members: 1. Executive Officers 2. Department Heads 3. Area Heads

Orientation and Education Program

Bangko Kabayan believes that the continuing development of people behind its operations is imperative to guarantee its success. Thus, Bangko Kabayan designed a training program for its Board of Directors and senior management to make sure that they continuously possess qualifications for the position they are handling and that they are kept abreast with the different developments in the banking industry. This program aims to provide them with the necessary skills and knowledge critical in the position as well as to keep them abreast with the different developments specifically in the banking

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industry, and the financial economy, in general.At a minimum, each of the members of the BOD must have attended the Corporate Governance and Risk Management Seminar which should be taken within six (6) months upon appointment from a BSP accredited organization.

For continuing professional education, the members of the BOD may opt to attend any of the following professional trainings: • Professional Director’s Program • Enhancing Audit Committee Effectiveness • Finance for Directors • Advance Corporate Governance Training • Legal Liabilities and Proceedings affecting banks and their directors • Anti-Money Laundering Act

In the case of senior management, at a minimum, they should have attended the Anti-Money Laundering Act Training Program and the Middle Management Leadership Program or its equivalent or the Leadership and Management Training Program.

Other trainings that they may be required to attend depending on the requirements of their jobs are as follows: • Labor Relations, Human Relations and Productivity • Strategic Planning and Management • Strategic Risk Management • Effective Auditing Techniques and Methodologies • Treasury Management • Disaster Recovery and Business Continuity Management • Customer Relations Management • Compliance Management System Assessment Seminar • Updates on various regulations • Trends on Information Technology

Succession Plan

Bangko Kabayan believes that human resource plays an integral part in the achievement of its vision. It recognizes the importance of enhancing the leadership culture and managing its top talents to continuously carry out the bank’s mission and objectives, for the greater good of the organization and the community it serves.

Bank leadership is shared among its Board of Directors and the senior management. The Board of

Directors (BOD) is composed of nine 9 members, 3, of whom are independent directors. The members of the BOD are elected by the stockholders from a host of qualified persons, based on the requirements of the BSP.The regular term of a director shall be from the date of his/her election to the next annual meeting of stockholders of the Bank or until his/her successors shall have been elected and qualified to take his/her place at said annual meeting. Unless a director shall sooner resign, be removed from office or becomes unable to act by reason of death, disqualification, or otherwise, he/she shall hold office during the term for which elected and until his/her successor is elected and qualified.

The Senior Management, on the other hand, is composed of the following positions: a. President / Chief Executive Officer b. Chief Operating Officer c. Chief Financial Officer d. Credit Group Head e. Strategic Support Group Head f. Compliance Officer g. Risk Officer h. Branch Banking Group Head i. Internal Audit Head j. Treasury / MIS Head

The bank acknowledges that any sudden movement/disruption in its leadership core will have a significant impact on the bank’s operations and may hinder the achievement of its goals.

To ensure its readiness for such movements, the bank designed a succession plan covering the following items:

a. Key Result Areas and Key Competencies and Skills

Key result areas, includes but not limited to portfolio and deposit volume targets, portfolio management, financial ratios, processing turn-around time, etc., for each position were identified. Similarly, education, experience and competencies required were also laid down. This is to ensure that the most suited successor can be put in place.

b. Criticality and the vacancy risk of the positions

The position’s overall impact in the achievement of the bank’s goals, as well as the imminence of losing the incumbent were also determined. These information are vital in identifying the priority positions needing immediate replacements.

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The position’s criticality is assessed using the degree or complexity of skills or knowledge that the incumbent must possess while the vacancy risk is assessed based on the incumbent’s age, marketability of skills and experience, tenure, life events or circumstances, future plans of the incumbent.

c. Management Development Program (MDP)

The management development program is a plan that aims to prepare the potential successors in assuming the position. It outlines the training programs that a potential successor must go through to augment the competencies that s/he currently possesses. It is a combination of classroom and practical trainings, which the potential successor, may take in a defined span of time.

Bangko Kabayan believes in the moral obligation to help prepare employees who devoted their lives in productive work to lead an enjoyable retirement life. The Bank has provided a noncontributory Employee Retirement Plan which covers the granting of retirement benefit for all eligible employees of Bangko Kabayan.

Retirement Policy

1. Eligibility for Membershipa. Membership in the Employee Retirement Plan shall be automatic for all officers and employees of Bangko Kabayan who are considered having regular employment status.

b. Membership will commence retroactively on the first day of the month coincident with or next following his attainment of regular employment status.

2. Normal Retirement Benefita. The normal retirement date of an employee shall be the first day of the month coincident with or next following attainment of age sixty (60) with at least five (5) years of credited service.

b. The normal retirement benefit shall be a sum equal to 150% of the employee’s salary for every year of credited service as of normal retirement date.

3. Early Retirement Benefita. With the consent of the management, an employee may opt to retire prior to his normal retirement provided he has completed at least ten (10) years of credited service regardless of the employee’s age

b. The early retirement benefit shall be a sum equal to a percentage of the employee’s salary for every year of credited service in accordance with the following schedule: Years of Credited Service Percentage Less than 10 0 % 10 to 14 100 % 15 to 19 125 % 20 or more 150 %

4. Late Retirement Benefita. An employee who is permitted by the management to continue to work on a yearly extension basis beyond his normal retirement date shall continue to be eligible for the Retirement Plan up to his late retirement date. The late retirement date of such employee shall be the first day of any month after attaining his normal retirement date but not beyond age 65.

b. The late retirement benefit shall be a sum equal to 150% of the employee’s salary for every year of credited service as of late retirement date.

5. Dismissal for Causea. An employee who is dismissed by the Bank for cause shall not be entitled to any benefits under the Employee Retirement Plan.

Remuneration Policy

The members of the board of directors will fix their compensation and reasonable per diems for attendance in meetings. Provided, that the compensation other than per diems shall have the prior conformity of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting. Provided, the amount shall not be more than ten percent (10%) of the net income before tax of the Bank during the preceding year.

With regards to the senior management, each of the position in the bank goes through the process of job evaluation wherein the following factors are determined: • Span of Control (30%); • Knowledge and Skills (30%) • Decision Making (40%)

The total points of each position determine the job level of that particular position which is used in determining the equivalent salary based on the salary structure as presented below:

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Band Job level Minimum MaximumExecutive 12 P70,000.00 P140,000.00 11 P55,000.00 P110,000.00 10 P42,000.00 P84,000.00

The above stated salary structure was arrived at by looking at the banking industry compensation as a whole, with focus on local banks to assess the spectrum of salary range for critical positions. This allows us to assess the risk and come up with a decent competitive positioning in the market, since the landscape of the competition has changed, that is at the same time sustainable and affordable.

Related Party Transaction Policy

The Bank allows transactions with related parties. However, BK ensures such transactions are conducted in an arm’s length manner or in the ordinary course of business. Each Director, Stockholder or Officer is responsible to declare any Related Party Transactions and the material interest that they, or an immediate family member, may have with the bank. Relevant information with respect to the transactions like, description and material terms and condition, value and share of the related party, related party’s involved in the transactions and any potential reputational risk issues that may arise, are disclosed in the contract.

The Board assures that all terms such as price, commissions, interest rates, fees, tenor, collateral requirement, contracts of related party transactions are within standard, as if they were applied to non-related parties. A material aggregate amount for a period of twelve (12) months from January to December of the financial year are set and approved by the Board as basis of the amount subject for review and approval of the board.

The members of the board, stockholders and management shall disclose to the board whether they directly, indirectly or on behalf of third parties, have financial interests in any transactions or matter affecting the bank. Directors and officers with personal interests on the related party transactions abstain from the discussion, approval and management of such transaction or matter affecting the bank.

For the year 2018, no related party transaction exceeded the materiality threshold set by the board.

Self-Assessment Function

The authority to carry out the internal audit function is vested in the Internal Audit Department, which reports directly to the Board of Directors (BOD) and meets periodically with the Board of Directors Audit Committee (BDAC) with regards to their work programs, reports, and status of recommendations.

The Internal Audit Department (IAD) headed by the Chief Audit Executive reports functionally to the Board and administratively (i.e. day to day operations) to the President.

The department is divided into three (3) units namely the Branch, Executive and Information Systems Audit units. Branch Audit Unit is primarily responsible in conducting the operations and compliance audit of branches while the Executive Audit Unit is in charge of the audit of the executive or head office business units as well as special audits, and other engagements requested by the BDAC and the Senior Management. On the other hand, Information Systems Audit Unit is responsible for the audit of Information Security and Technology controls that support BK’s business operations.

Internal audit provides an independent and objective review and advisory service to provide assurance to the Board of Directors that Bangko Kabayan’s financial and operational controls designed to manage the organization’s risks and achieve the entity’s objectives are operating in an efficient, effective and ethical manner, and assist management in improving the entity’s business performance. To assure its effectiveness, auditors are expected to be independent from the entity’s operations which are determined by analyzing the reporting process and verifying that management does not interfere with the openness of the findings and recommendations. This requirement does not, however, limit the Internal Audit from rendering advises on matters pertaining to the development of internal controls as it is a cost-effective way of ensuring that management makes informed decisions when controls need to be introduced.

IAD shall undertake a review of operations including both its documentation and financial activities. The primary objectives of internal audit are to: 1. Ascertain that bank’s assets are properly safeguarded 2. Assess whether the information and reporting thereof are reliable

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3. Confirm compliance with policies, procedures, and regulations 4. Recommend improvements relating to the efficiency and effectiveness of the use of resources 5. Assure that significant issues are addressed properly 6. Substantiate that internal audit is a catalyst of growth

The BDAC approved a three-year risk-based audit plan to carry-out IA functions. Consumer Protection Practices

Bangko Kabayan Inc. (A Private Development Bank) recognizes the right of the consumer to avail of financial products and services. BK aims to provide the highest quality of service possible in order to be responsive to the needs of their stakeholders while maintaining a high standard of accountability.BK’s Consumer Protection Program is consistent with the BSP Consumer Protection Framework. Detailed procedures of the bank’s compliance and implementation of the consumer protection standard, to wit; (a) Disclosure and Transparency (b) Protection of Client Information (c) Fair Treatment (d) Effective Recourse (e) Financial Education and Awareness

For the year 2018, valid consumer complaints represent only 3.20% of the total number of transactions.

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Major Stockholders

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Product and Services

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Product PerformanceRegular Loans

Consistent decrease was due to continuous increase on large corporation with lower rates.

Composition

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Pedro G. BalotocClient since 1988

Microfinance Loans

Composition

Same past due rate for 2017 and 2018, and still below the bank’s risk appetite of 5%.

Slight decline due to decrease in Kapitan Loan which have higher yield.

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Virginia P. DimayugaClient since 2004

Branch Directory

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Audited Financial Statement

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Capital Structure and Capital Adequacy

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Hindi basta Bangko, Kabayan pa!